WEST PHARMACEUTICAL SERVICES INC

Note 17: Income Taxes

As a global organization, we and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. As of December 31, 2025, the statute of limitations for the U.S. federal tax years 2022 through 2025 remain open to examination. For U.S. state and local jurisdictions, tax years 2021 through 2025 are open to examination. We are also subject to examination in various foreign jurisdictions for tax years 2018 through 2025.

A reconciliation of the beginning and ending amount of the liability for unrecognized tax benefits is as follows:

In addition, we had balances in accrued liabilities for interest and penalties of $8.9 million and $6.6 million at December 31, 2025 and 2024, respectively. As of December 31, 2025, we had $56.1 million of total gross unrecognized tax benefits, the entirety of which, if recognized, would favorably impact the effective income tax rate.

The components of income before income taxes and equity in net income of affiliated companies are:

The related provision for income taxes consists of:

Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes.

The significant components of our deferred tax assets and liabilities at December 31 are:

A reconciliation of the U.S. federal corporate tax rate to our effective consolidated tax rate on income before income taxes and equity in net income of affiliated companies is as follows:

(1) State taxes in Arizona, Illinois, and Pennsylvania, contributed to the majority of the tax effect in this category.

During 2025, we recorded a tax benefit of $4.5 million associated with stock-based compensation.

During 2024, we recorded a tax benefit of $19.5 million associated with stock-based compensation. The Company recognized a $2.3 million tax benefit related to a reduction in the tax liability on the unremitted earnings of its Germany subsidiaries due to a law change in 2024.

During 2023, we recorded a tax benefit of $32.0 million associated with stock-based compensation. The Company recognized a $3.0 million state tax benefit based on the outcome of a recent court case. In addition, the Company recorded $2.8 million of tax expense due to a change in the permanent reinvestment assertion of its German subsidiaries.

On July 4, 2025, the One Big Beautiful Bill Act was signed into law in the U.S. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The impact to the Company’s income tax expense and effective tax rate for the twelve months ended December 31, 2025 associated with this legislation is not material.

State operating loss carryforwards of $63.1 million created a deferred tax asset of $3.2 million. Management estimates that certain state operating loss carryforwards are unlikely to be utilized and the associated deferred tax assets have been appropriately reserved. State loss carryforwards expire as follows: $19.7 million in 2026 and $43.4 million thereafter.

During 2019, we utilized all of our remaining U.S. federal research and development credit carryforwards. State research and development credit carryforwards of $1.1 million created a deferred tax asset of $0.9 million which expire after 2026. As of December 31, 2025, we have $6.9 million of U.S. foreign tax credit carryforwards, which will begin to expire in 2035. Management estimates that the portion of the U.S. foreign tax credit carryforwards associated with the passive basket are unlikely to be utilized and have been appropriately reserved.

Since 2018, West has reasserted indefinite reinvestment related to all post-2017 unremitted earnings in all of our foreign subsidiaries. To support the funding of share repurchase programs, see Note 4, Net Income Per Share, West may continue to repatriate earnings from its German affiliates in the future and has recorded a tax liability of $2.3 million. Accordingly, West will continue to not assert permanent reinvestment related to all of the earnings of its wholly owned German affiliates through 2025. West will continue to assert permanent reinvestment of earnings for all other foreign jurisdictions and intends to only repatriate earnings when the tax impact is de minimis.

Accordingly, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of approximately $780 million of undistributed earnings from foreign subsidiaries (except our German affiliates) to the U.S., as those earnings continue to be permanently reinvested. Further, it is impracticable for us to estimate any future tax costs for any unrecognized deferred tax liabilities associated with our indefinite reinvestment assertion, because the actual tax liability, if any, would be dependent on complex analysis and calculations considering various tax laws, exchange rates, circumstances existing when there is a repatriation, sale or liquidation, or other factors.

Total income taxes paid (net of refunds) consists of:

Note 18: Commitments and Contingencies

At December 31, 2025, we were obligated under various operating lease agreements. Please refer to Note 6, Leases, for additional details.

At December 31, 2025, we were obligated under debt agreements, net of unamortized debt issuance costs including fixed and variable-rate debt. Please refer to Note 10, Debt, for additional details.

At December 31, 2025, we were obligated under various tax-qualified and non-qualified defined benefit pension plans in the U.S. and other countries that cover employees and former employees who meet eligibility requirements. Please refer to Note 15, Benefit Plans, for additional details.

At December 31, 2025, our outstanding unconditional contractual commitments, including for the purchase of raw materials and finished goods, amounted to $221.8 million, the majority of which is to be paid over the next three years, with $75.0 million due to be paid in 2026.

We have letters of credit totaling $2.3 million supporting the reimbursement of workers’ compensation and other claims paid on our behalf by insurance carriers. Our accrual for insurance obligations was $2.0 million at December 31, 2025, of which $0.4 million is in excess of our deductible and, therefore, is reimbursable by the insurance company.

Securities Class Action

On May 5, 2025, New England Teamsters Pension Fund filed a class action against us and certain of our current and former officers in the United States District Court for the Eastern District of Pennsylvania, purportedly on behalf of a class of the Company’s investors who purchased or otherwise acquired the Company’s common stock between February 16, 2023 and February 12, 2025. On July 23, 2025, the court appointed lead plaintiffs in the action. On October 15, 2025, the lead plaintiffs filed an amended complaint. The amended complaint alleges violations of Sections 10(b), 20(a) and 20A of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with 1) various public statements made by the Company and certain current and former officers regarding its business, operations and prospects and 2) certain current and former officers' transactions in the Company's stock. The action seeks unspecified damages, costs and expenses, including attorneys’ fees. On December 18, 2025, the defendants filed their first motion to dismiss the amended complaint. We believe the claims in the amended complaint are without merit and we intend to vigorously defend against such claims. Given the nature of the case, including that the proceedings are in their early stages, we are unable at this time to reasonably estimate losses, if any, or form a judgment that an unfavorable outcome is either probable or remote.